Cincinnati Financial Corporation · NASDAQ:CINF
Cincinnati Financial — Investor Presentation (October 2013)
33 slides from Cincinnati Financial's investor presentation, Oct 30, 2013
Slide 1: Cincinnati Financial Corporation October 2013
Cincinnati Financial Corporation October 2013
Slide 2: Forward-looking statements
Nasdaq : CINF • This presentation contains forward - looking statements that involve risks and uncertainties. Please refer to our various filings with the U.S. Securities and Exchange Commission for factors that could cause results to materially differ from those discussed. • The forward - looking i
Slide 3: Strategy Overview
Strategy Overview • Competitive advantages: • Relationships leading to agents’ best accounts • Financial strength for stability and confidence • Local decision making and claims excellence • Other distinguishing factors: • 53 years of shareholder dividend increases • Common stocks for 25 - 30% of in
Slide 4: Performance Targets & Trends
Performance Targets & Trends • Annualized value creation ratio meeting 10% to 13% target • Related performance drivers were on track at nine months: – 13% premium growth exceeded industry average – 93.8% combined ratio was below 95% target and continued to improve from a year ago on a before catastr
Slide 5: Cincinnati Financial at a Glance
Cincinnati Financial at a Glance • Top 25 U.S. P/C insurer • A.M. Best rating: A+ Superior • $3.5 billion 2012 premiums: – 67% commercial – 25% personal – 5% life – 3% excess & surplus • Competitive advantages: – Relationships leading to agents’ best accounts – Financial strength for stability and c
Slide 6: Third-Quarter 2013 Highlights
Third - Quarter 2013 Highlights • EPS of 79 cents vs. 3Q12 of 68 cents per share – Operating earnings of 70 cents per share, up 9% from 3Q12 • Property casualty net written premiums grew 15% – Higher average renewal pricing: commercial lines and personal lines rose mid - single - digits, excess and
Slide 7: Long-Term Value Creation
Long - Term Value Creation • Targeting annual rate of growth in book value plus the rate of dividend contribution to average 10% to 13% from 2013 through 2017 – Value creation ratio (VCR) for 2009 through 2012 averaged 12.4% – 9.8% VCR for YTD 09 - 30 - 13 was up 0.2 points from YTD 09 - 30 - 12 • R
Slide 8: Increase Value for Shareholders Measured by Value Creation Ratio (VCR)
Increase Value for Shareholders Measured by Value Creation Ratio (VCR) - 25% - 20% - 15% - 10% - 5% 0% 5% 10% 15% 20% 25% 30% 35% 2008 2009 2010 2011 2012 VCR - Investment Income & Other VCR - P&C Underwriting VCR - Bond Portfolio Gains VCR - Equity Portfolio Gains Total Shareholder Return (TSR) (23
Slide 9: Combined Ratio Reflects Improving Underwriting Profitability Trends
• 2011 ratios exclude the effects of $42 million reinsurance reinstatement premium Combined Ratio Reflects Improving Underwriting Profitability Trends 94.7% 86.1% 88.7% 103.9% 96.8% 92.9% 70% 75% 80% 85% 90% 95% 100% 105% Year 2011 Year 2012 9 mos 13 AY 2011 at 12 mos AY 2012 at 12 mos AY 2013 at 9
Slide 10: Strategies for Long-Term Success
Strategies for Long - Term Success • Financial strength for consistent support to agencies – Diversified fixed - maturity portfolio, laddered maturity structure • No corporate exposure exceeded 0.7% of total bond portfolio at 09 - 30 - 13, no municipal exposure exceeded 0.3% – 29.7% of investment po
Slide 11: Improve Profitability
Improve Profitability • Enhancing underwriting expertise and knowledge – Property loss mitigation efforts supplement rate increases and gradual geographic diversification: • Increasing specialized expertise of our claims and loss control staff • Revising underwriting guidelines and increasing proper
Slide 12: Drive Premium Growth
Drive Premium Growth • New agency appointments bring potential for growth over time – Target for 2013: appoint approximately 80 agencies • 78 appointed YTD 09 - 30 - 13, $1.5B aggregate premiums from all carriers • 140 appointed in 2012, $2.7B aggregate premiums from all carriers • Lower 2013 target
Slide 13: Premium Growth Potential
Premium Growth Potential • Historically, we earn approximately 10% market share in new agencies within 10 years after appointment – demonstrated by: – 2% share earned in 2012 for all agencies appointed in 2011, 5 % for appointments during 2008 - 11, 8 % for appointments during 2003 - 07 – $50 millio
Slide 14: Select Group of Agencies in States
Select Group of Agencies in 39 States P&C Market Share: 1% and higher Less than 1% Inactive states Headquarters (no branches) 1,439 agency relationships with 1,811 locations Our Commercial Top Five = 42% Ohio, Illinois, Pennsylvania, Indiana, North Carolina Our Personal Top Five = 60% Ohio, Georgia,
Slide 15: Appendix
Appendix Income, Dividend & Cash Flow Trends Underwriting & Premium Growth Trends Business Mix & Premium Growth Potential Reserve Adequacy & Development Trends Investment Portfolio Management & Performance Reinsurance, Ratings & Valuation Comparison to Peers
Slide 16: Income and Shareholder Dividends
Income and Shareholder Dividends $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 2009 2010 2011 2012 9 mos 12 9 mos 13 Operating Income Net Income Dividends Lower catastrophe losses drove only 16% of full - year 2012 improvement (operating basis) Per share basis
Slide 17: Cash Dividend Payout Ratio
0% 20% 40% 60% 80% 100% 120% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012 Dividend Payout Ratio – Net Income Dividend Payout Ratio – Operating Income 57% average for years 2003 through 2012 (net income basis) Cash Dividend Payout Ratio Strong Capital and Cash Flow Support Recent
Slide 18: Dividend as a Percentage of Net Cash Flow From Operations
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Dividend as a Percentage of Net Cash Flow From Operations
Slide 19: Operating Cash Flow Generally Trending Favorably
Operating Cash Flow Generally Trending Favorably, Aligned with Rising Profits $0 $100 $200 $300 $400 $500 $600 2008 2009 2010 2011 2012 9 mos 12 9 mos 13 (In millions) Record - high catastrophe losses in 2011 Income taxes paid were $161 million higher for 9 mos 13
Slide 20: Cincinnati Typically Outperforms the Industry
Cincinnati Typically Outperforms the Industry 65% 70% 75% 80% 85% 90% 95% 100% 105% 2008 2009 2010 2011 2012 Cincinnati – excl. cat. losses Est. Industry (A.M. Best) – excl. cat. Losses Cincinnati – incl. cat. losses Est. Industry (A.M. Best) – incl. cat. Losses Statutory combined ratio Industry dat
Slide 21: Greater Pricing Precision Is Improving Profit Margins
Greater Pricing Precision Is Improving Profit Margins Commercial package p olicy mid - 2013 renewal price increase averages by modeled pricing segments illustrates pricing precision effects Most adequate refers to policies that need less price increase based on pricing adequacy of expiring premium p
Slide 22: Premium Growth Versus Industry
Premium Growth Versus Industry Our Growth Rate Outpaced the Industry as the Market Firmed - 4.0% - 2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2008 2009 2010 2011 2012 Cincinnati Estimated Industry excluding mortgage and financial guaranty (A.M. Best) Property casualty net written premium growth
Slide 23: Market for 75% of Agency's Typical Risks
Market for 75% of Agency’s Typical Risks 2012 Net Earned Premiums Commercial Property 16% Machinery and Equipment 1% Commercial Casualty 23% Specialty Packages 5% Commercial Auto 13% Workers' Compensation 10% Surety and Executive Risk 3% Excess & Surplus 3% Homeowner 11% Personal Auto 12% Other Pers
Slide 24: Premium Growth Potential Within Cincinnati-Appointed Agencies
Premium Growth Potential Steadily Increase Our Share Within Cincinnati - Appointed Agencies 1.8% 5.4% 8.0% 16.1% 1 year or less 2 - 5 years 6 - 10 years 10 years or more • Cincinnati share of estimated $33 billion total property casualty premiums produced by currently appointed agencies is approxima
Slide 25: Property Casualty Reserves Favorable Development
Property Casualty Reserves Favorable Development for 24 Consecutive Years $3,498 $3,661 $3,811 $3,905 $3,813 2008 2009 2010 2011 2012 Reserve range at 12 - 31 - 12 Low end $ 3,598 High end $3,918 Carried at 67 th percentile Values shown are carried loss and loss expense reserves net of reinsurance V
Slide 26: Accident Year Combined Ratios and Reserve Development
Accident Year Combined Ratios Effect of Reserve Development From Re - estimation Is Significant 94.6% 95.6% 96.8% 100.9% 94.2% 10.2% 10.6% 9.7% 6.2% 2.6% 80% 85% 90% 95% 100% 105% 110% 115% 120% 125% AY 2008 AY 2009 AY 2010 AY 2011 AY 2012 Accident yr as of Sep 30, 2013 Reserve development to date C
Slide 27: Investment Income
Investment Income 1% Growth for 2012, 2% CAGR since 2009 (pretax ) $0 $100 $200 $300 $400 $500 2008 2009 2010 2011 2012 After - tax yield: (Bonds at amortized cost, stocks at fair value) 3.52 % 3.45 % 3.39 % Pretax yield to book as of 12 - 31 - 12 for bonds maturing in 2013=4.5%, 2014=4.9%, 2015=4.5
Slide 28: Investment Portfolio
Investment Portfolio Invest for Income and Appreciation Taxable Fixed Maturities $6.172 Tax - Exempt Fixed Maturities $2.866 Common Equities $3.873 Preferred Equities $0.111 $ 13.0 billion fair value at September 30, 2013 Investment leverage: 224% at September 30, 2013 Bond portfolio fair value exce
Slide 29: Diversified Equity Portfolio
Diversified Equity Portfolio * Balances Income Stability & Capital Appreciation Potential September 30, 2013 Sector CFC S&P 500 Weightings Information technology 18.6% 17.9% Industrials 13.8 10.7 Financial 11.6 16.3 Healthcare 11.4 13.0 Consumer staples 10.9 10.0 Energy 10.7 10.5 Consumer discretion
Slide 30: Bond Portfolio Risk Profile
Bond Portfolio Risk Profile $9.038 Billion at September 30, 2013 • Credit risk – A3/A average rating – 60% rated >=A, 35% rated BBB, 3% rated <=BB, 2% unrated – No European sovereign debt – Euro - based securities < 5% of bond portfolio (mostly corporate bonds) • Interest rate risk – 4.5 years effec
Slide 31: Solid Reinsurance Program
Solid Reinsurance Program Balances Costs With Shareholders’ Equity Protection Major Treaties (Estimated 2013 ceded premiums) Coverage and Retention Summary at 01 - 01 - 13 Property catastrophe ($60 million) • Treaty has one reinstatement provision • $100 million additional coverage, including $28 mi
Slide 32: Financial Strength Ratings Comparison
Source: SNL Financial as of October 9, 2013. Ratings are under continuous review and subject to change and/or affirmation. A.M. Best Fitch Moody's S&P Cincinnati A+ A+ A1 A Auto Owners A++ - - A Chubb A++ AA Aa2 AA Acuity A+ - - A+ Allied A+ A A1 A+ Harleysville A+ - A1 A+ Travelers A+ AA Aa2 AA Cen
Slide 33: Valuation Comparison to Peers
Valuation Comparison to Peers 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 Ratio of closing price on 10 - 29 - 13 to latest reported tangible book value
Cincinnati Financial — Investor Presentation (October 2013) on 6ix